Employment News a 'Downer' for Equity Markets

by: Bill Cara

[Excerpted from Bill Cara's Daily Report]

Thursday’s Employment Report was a downer for US equities. Too many people had been hooked into the belief that the unemployment situation in the US, and Europe as well, was on the mend. The data shows otherwise.

With final hour selling going into the long holiday weekend, Thursday’s session was particularly nasty. The S&P 500 (896.42 -26.91 -2.91%), the DJIA (8,280.74 -223.32 -2.63%), and the NASDAQ (1,796.52 -49.20 -2.67%) were all down substantially.

However, in the prior day’s report on a day of solid gains, I had remarked, “Stronger, but with Biotechs and Banks both down ($BTK -1.4% $BKX -0.7%) and Goldminers and Hospitals leading the way up ($XAU +3.8% $RXH +2.8%), it was clear there was no rally underway”. So, to the observant, yesterday was not unexpected.

There were no leading sectors. In fact, every one was down at least -2.0%. The worst hit by selling was Consumer Discretionary (XLY-4.1%), and Energy (XLE -4.0%). Moreover, every industry group was down at least -1.0%, with REITs, Natural Gas stocks and Retailers down over -4.0% ($DJR -5.9% $XNG -4.2% $RLX -4.0%).

For the Retailers, fully 24 of them on my monitor were down more than -5.0%, with the biggest losers being Rite Aid (RAD -12.3%), Talbots (TLB -9.7%) and Interline Brands (IBI -9.4%). With unemployment at +9.5%, and rising, Americans are cutting back more on their purchases, and they are saving more as well for the tougher times ahead.

The potash play is an interesting story. http://tinyurl.com/mt6jrn

The Toronto markets re-opened after Canada Day with the Toronto Composite (10,245.91 -129.00 -1.24%) following NY, but the Toronto Venture bourse being flat on the session (1,092.58 +0.61 +0.06%).

Earlier Friday, Austral-Asian markets were mixed following a disappointing US employment report. China (3,088.4 +0.92%), Hong Kong (18,203.4 +0.14%) and India (18,203.4 +0.14%) were stronger, while Japan’s Nikkei 225 (9,816.1 -0.61%), and Aussie All Ordinaries (3,826.6 -1.25%) lost ground in the final session of the week.

The European equity bourses are quiet Friday morning because of the holiday in the US. The French CAC (3,108.9 7:32AM ET -0.24%), German DAX (4,700.5 7:17AM ET -0.38%) and UK FTSE 100 (4,241.0 7:17AM ET -0.16%) were all down a tad.

In US trading on the Wednesday, there were just 4 winners among Cara 100s. Potash (POT +5.6%) was the only one with a gain higher than +1%. The others with small gains were LLTC, TGP, and BRCM. On a big day for losers, the worst was the usual Brunswick Corp (BC -9.5%) and Mobile TeleSystems (MBT -6.6%).

The trade-weighted $USD index (80.26 +0.61 +0.76%) gained, and so did the Yen against the USD (104.24 +0.74 +0.71%), while the Euro (140.01 -1.47 -1.04%), Pound (163.87 -0.93 -0.56%), and Cdn Loonie (86.08 -0.92 -1.06%) were all soft against the US Dollar.

In so-called fixed income trading, the US long Bond was stronger ($USB 118.94 +0.70 +0.59%). The Treasury yields for 30-year (4.317 -0.30 -0.69%), 10-year (3.495 -0.49 -1.38%), and 5-year (2.424 -0.94 -3.73%) all dropped after the unsatisfactory employment data was published. Treasury bill yields dropped (0.155 -0.10 -6.06%), which was an extension of Wednesday move into shorter-term paper as the economic data weakened.

$GOLD has whipsawed traders. First, it pulled back sharply (926.60 -11.20 -1.19%) on Tuesday, then reversed course Wednesday (940.80 +14.20 +1.53%), finally reversing course again on Thursday (929.50 -11.30 -1.20%). Trading has been very volatile in the precious metals.

Crude Oil was weaker (66.71 -2.60 -3.75%), which was a third straight daily decline in prices.

Spot gold, palladium, platinum and silver are mixed in quiet trading this morning: (933.26 +1.06 +0.11% 07:33am ET); (246.0 -3.0 -1.20% 07:33am ET); (1182.0 -3.0 -0.25% 07:33am ET); and (13.4425 +0.0425 +0.32% 07:32am ET), respectively.

The Euro was a tad weaker (1.3997 -0.0028 -0.20% 07:20am ET).

Crude oil was flat (66.75 +0.02 +0.03% 07:20am ET).